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Assessment and Training-Workshop Offered to MABS Participating Banks Management and Recovery in a Time of Disaster.

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Presentation on theme: "Assessment and Training-Workshop Offered to MABS Participating Banks Management and Recovery in a Time of Disaster."— Presentation transcript:

1 Assessment and Training-Workshop Offered to MABS Participating Banks Management and Recovery in a Time of Disaster

2 Training Objectives Assist participating rural banks to assess impact of natural disasters on their operations Present options/ measures to manage possible cash flow demands and liquidity risks Present options/ measures to ease the burden posed by the loan on existing clients, while continuously pursuing loan recovery to protect portfolio quality and growth

3 Training-Workshop Agenda Training-Workshop Agenda I. Workshop 1 – Impact of Disaster on Banking Operations – Liquidity & Delinquency Management II. Framework for Disaster and Risk Management III. Loan portfolio management and recovery IV. Workshop 2 – Options for Managing Risks V. Next Steps

4 Workshop 1 Workshop 1 Instructions: 1. Using workshop handout 1, discuss with your group your observations on the impact of typhoon Reming and measures which your bank has put in place. 2. After completing the workshop handout, write the group output in a manila paper. 3. A few groups may be asked to present their output to the big group.

5 Important Considerations When Choosing Disaster Response/Options Liquidity Income Portfolio Quality (PAR) RISKS

6 A Framework for Disaster Risk Management A Framework for Disaster Risk Management 1.Portfolio Quality 2.Liquidity 3.Property 4.Staff 1. Property 2. Business/Farm 3. Lives 4. Health CLIENTS RISKS BANK RISKS Repayment Savings W/drawal EMERGENCY RESPONSE AND RECOVERY TOOLS

7 A Framework for Disaster Risk Management A Framework for Disaster Risk Management DISASTERSDISASTERS Banks On Liquidity 1. Temporary decline in inflows from affected clients 2. Temporary increase in outflows to affected clients On Portfolio Quality 3. Medium-term decline in repayment rates and/or new loan demand Clients 1. Temporary inability to earn income 2. Increased basic expenditures 3. Damage to or destruction of income-generating assets 4. Damage to or destruction of household assets IMPACTIMPACT Emergency Responses 1. Retrieve/salvage whatever assets left 2. Rely on relief assistance from govt./other agencies 3. Withdraw from their savings 4. Loan restructuring/New loan/ Emergency loan Emergency Responses 1. Flexible savings policy 2. Maximize available rediscounting/ credit lines 3. Moratorium on lending 4. Loan restructuring/ Refinancing

8 Impact of Disaster to Affected Clients & Banks Concerns/IssuesCLIENTRURAL BANK Liquidity Some clients save less or stop savings deposits Some clients withdraw savings Some clients miss paying their loans Some clients will request for new loans or emergency loans Possible liquidity shortfall Savings as a form of group guarantee is diminished Group guarantee mechanism may lose its affectivity Portfolio at Risk: Loan recovery & management Some clients miss paying their loans Some clients will request for new loans or emergency loans Reduced collection increases PAR Higher loan loss provisioning increases cost Pressure on bank’s liquidity position May affect bank’s profitability

9 Liquidity management measures Draw on available credit lines Request for flexible conditions on existing loans from fund providers Provide incentives to bigger depositors Disaster Response Measures/ Options

10 Modified Policies and Procedures Imposing a moratorium on lending Restructuring loan Refinancing Write-off Disaster Response Measures/ Options Product Modifications Withdrawal of compulsory savings Provide emergency loans Shift from group-based liability to individual liability during a disaster

11 Non-Financial Emergency Responses Training on Risk/Disaster awareness Information Dissemination Distribution of emergency/relief supplies Disaster Response Measures/ Options

12 Conduct Portfolio Review and on-site field validation (use MABS Post- Disaster Survey Tool)  Current vs. Delinquent loan account  New vs. Repeat loans  Determine risk exposure against savings balance  Ascertain damage to business and household and whole community  Ascertain client’s ability to re-establish business  Ascertain other sources of income Basic Consideration Before Choosing Options

13 Assess liquidity position Check readiness of MIS  Can existing MIS handle/capture nuances of the various response measures/options Basic Consideration Before Choosing Options

14 Instructions: 1. Using workshop handout 2, discuss in your group what are the disaster response measures/options that you think are applicable to the situations of your clients. Also provide what criteria or considerations you will need to use in each of the options. Workshop 2

15 Disaster Response Measure/Option Response Measure ConsiderationsPossible Impact I. Moratorium on Lending a) General – New & Repeat Loans? b) Selective – New Loans only? Staff will require training to implement this procedure particularly on how and when to inform clients to ensure that it does not create a crisis of confidence Should define the length of time the policy is implemented May result to a temporary excess of liquidity; Or may help abate a potential liquidity problem If not done properly, may result to a crisis of confidence May affect bank’s ability to generate income Modification of Policies and Procedures

16 Disaster Response Measures/Options Response Measure ConsiderationsPossible Impact II. Restructure Loans - Option 1: Bank continues to collect interest payments while principal repayments are restructured MIS must be able to track interest payments without principal payments MIS must be capable of altering loan terms Liquidity projections of the bank must be altered Staff training to assess clients’ situation, whether they meet selection criteria and how to communicate procedure to them Interest payments minimizes impact of delayed payments to the banks liquidity

17 Response Measure ConsiderationsPossible Impact II. Restructure Loans – Option 2: Bank extends loan term by, say, 1 or 2 months, but charges corresponding interest for period of extension Assess bank’s liquidity situation MIS must be capable of altering loan terms Staff training to assess clients’ situation, whether they meet selection criteria and how to communicate procedure to them This puts greater strain on liquidity as no payments is expected for a period of time This however helps to reduce losses as full interest payments are made Allows clients sufficient time before payments are required Disaster Response Measures/Options

18 Response Measure ConsiderationsPossible Impact II. Restructure Loans – Option 3: Bank extends the term of the loan by, say, 1 to 2 months with no corresponding interest for the period of extension MIS must be capable of altering loan terms Staff training to assess clients’ situation, whether they meet selection criteria and how to communicate procedure to them This strategy foregoes potential interest income to compensate for possible losses Allows severely affected clients time before payments are required May affect bank’s profitability Disaster Response Measures/Options

19 Response Measure ConsiderationsPossible Impact III. Refinancing Providing an additional loan to an existing good client to assist in the full recovery of his/ her business Enough liquidity to service additional loan requirements MIS must be capable of capturing additional loan to client Staff training to assess clients’ situation, evaluate whether they meet selection criteria, and how to communicate procedure to them Bank is able to keep its good clients Able to speed up client’s business recovery, and repayment capacity Disaster Response Measures/Options

20 Response Measure ConsiderationsPossible Impact IV. Write-offCandidates for write off are loan accounts with PAR more than 90 days Bank has adequate loan loss reserve A special unit or dedicated account officers are in place to pursue remedial management measures Flexibility to negotiate with clients on various ways to settle delinquent account Written off accounts when collected are realized as other income BIR recognizes written-off account as an expense; hence lesser income tax for the bank Instead of following-up on non- productive accounts, AOs can instead spend such time to generate new loans Disaster Response Measures/Options

21 SavingsContextWhat to do Compulsory Savings In normal times, used as a substitute collateral, hence, savings is tied to client’s loan In times of disaster, clients should be allowed access to address emergency needs Make compulsory savings semi- flexible (allow a percentage of the savings balance to be withdrawn by the client) Caution: Don’t ask clients to return all amounts withdrawn before giving them another loan Voluntary Savings Used for building financial assets that the client can access anytime One of the best coping mechanisms for clients during times of disasters Design an “emergency kitty” savings product that clients could regularly save for in affordable amounts; with or without restrictions on withdrawals (find out what clients prefer) Information dissemination to microfinance clients on existing regular savings products

22 Disaster Response Measures/Options Response Measure ConsiderationsPossible Impact I. Withdrawal of Compulsory Savings MIS must be capable of tracking extraordinary withdrawals Assess liquidity position; for cash-strapped banks, consider alternative sources of funds to shore up liquidity Staff training to assess clients’ situation, and how to communicate procedure to them Will have an impact on the banks liquidity situation However, this will enable the bank to earn loyalty of its clients, and may encourage more savings especially if CS is made semi-flexible Product Modification

23 Overview of Disaster Response Measures Response Measure ConsiderationsPossible Impact II. Provide Emergency Loans MIS must be capable of tracking multiple loans of different products from one client Staff training to assess clients’ situation, whether they meet selection criteria and how to communicate procedure to them Will require additional sources of funds since additional disbursements are to be made before the projected payment of outstanding loans This loan will assist clients in good standing but will be a burden to those with history of missed payments

24 Response Measure ConsiderationsPossible Impact III. Shift from group-based liability to individual liability, as interim or permanent measure For members of centers that demonstrate varying levels of repayment capacity May require designing of a transition product MIS must be capable of handling the change to individual loans The bank should be prepared to handle a substantial increase in transaction flow Staff training to assess clients’ situation, whether they meet selection criteria and how to communicate procedure to them Impact on liquidity depends greatly on clients’ response May encourage prompt repayments from clients who are able to pay, but also removes the guarantee for those who are not May encourage payments and increase loan disbursements Disaster Response Measures/Options

25 Overview of Disaster Response Measures Non-Financial Emergency Responses Response Measure ConsiderationsPossible Impact 1. Relief goods & supplies Loan portfolio must be under control and liquidity position adequate Staff capability to undertake additional tasks Additional funds to cover costs of these services Accounting system must be able to track costs separately Networking and coordinating with relief goods providers Getting involved ensures the survival of the bank during and after the crisis; Gain “pogi” points from grateful clients, loyalty, bank image CAUTION: Clients who do not receive sufficient explanation as to why, how and for how long these services are offered could start to see the bank as a relief agency and fail to make future payments

26 LESSONS LEARNED Some LONG TERM CONSIDERATIONS for Disaster Preparedness 1.Prepare for natural disasters before they occur: have a contingency plan ready 2.Continuous assessment of the institution’s existing capacity: human, MIS, liquidity 3.Diversify risks: geographically, by business activities And Future Plan of Action to Ensure Preparedness

27 LESSONS LEARNED And Future Plan of Action to Ensure Preparedness LESSONS LEARNED


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